Central Banks to increase gold reserves

The World Gold Council has released a gold reserves survey that determined Central Banks are planning to substantially increase their buying of gold bullion.

The report noted that this year’s Central Bank Gold Reserves (CBGR) survey highlights several notable shifts in central bank attitudes towards gold. Increased interest in gold’s “performance during times of crisis” would suggest that the fast-changing financial and economic landscape has sparked a significant transformation in investment attitudes.

At the same time, factors that were relevant before the Covid-19 outbreak, such as negative interest rates, increased political risk, concerns about fiscal sustainability and changes to the geopolitical order continue to inform central banks’ view of gold.

Looking ahead, profound uncertainty about the impact of the coronavirus pandemic may accelerate some of these factors and, in turn, prompt central banks to look more closely at gold. The markedly higher proportion of respondents who are planning to add gold to their reserves this year may also reflect concerns about the unpredictable impact of the pandemic. Ultimately, the combination of recent market developments and persistent long-term trends has strengthened central banks’ interest in gold, pointing to continued purchases from the official sector.

According to the 2020 CBGR survey, 20% of central banks intend to increase their gold reserves over the next 12 months, compared to just 8% of respondents in the 2019 survey. The increase is particularly notable as central bank buying has reached record levels in recent years, adding around 650 tonnes in 2019 alone.

A total of 88% of respondents say that negative interest rates are a relevant factor for their reserve management decisions. The continuation of expansionary monetary policies due to the Covid-19 pandemic, which coincided with the fieldwork of this survey, will likely keep interest rates near zero for the foreseeable future.

Furthermore, 79% of respondents view gold’s performance during times of crisis as an important reason to hold gold, up from 59% in 2019; while 74% of respondents consider gold’s lack of default risk to be an important reason for holding the metal, up from 59% in 2019.

These shifts may suggest a re-evaluation of gold’s role amidst ongoing financial and economic uncertainty, while also reflecting long-term concerns about fiscal sustainability as government stimulus is deployed to cushion the global economy.

“Historical position” and “long-term store of value” remain the top two reasons for holding gold, cited by 83% and 79% of respondents respectively as highly or somewhat relevant. But “performance during times of crisis” has risen from fifth to third place, cited as highly or somewhat relevant by 79% of respondents, compared to 59% in 2019.

Some 60% of respondents buy gold through the global OTC market, while over a quarter buy gold from domestic production, rising to 31% among EMDE central banks. Good Delivery bars continue to be the mainstay among central banks with 75% buying gold in that form. Kilo barsand doré were much less popular, being employed by 6% and 3% of respondents respectively.